Negotiators of the European Council and the European Parliament reached provisional agreement on sustainable standards for the creation of European green bonds (EuGB).
This regulation lays down uniform requirements for issuers of bonds that wish to use the designation European green bond or EuGB for environmentally sustainable bonds that are aligned with the EU taxonomy and made available to investors globally.
Also establishes registration system and supervisory framework for external reviewers.
To prevent greenwashing in the green bonds market in general, the regulation also provides for some voluntary disclosure requirements for other environmentally sustainable bonds and sustainability-linked bonds issued in the European Union.
Green Bonds
Environmentally sustainable bonds are one of the main instruments for financing investments related to green technologies, energy efficiency and resource efficiency.
As well as sustainable transport infrastructure and research infrastructure.
Under agreement, all proceeds of EuGBs will need to be invested in activities that are aligned with EU taxonomy, provided the sectors concerned are already covered by it.
For those sectors not yet covered by the EU taxonomy and for certain very specific activities there will be a flexibility pocket of 15%; this is to ensure the usability of the European green bond standard from the start of its existence.
The use and need for this flexibility pocket will be re-evaluated as Europe’s transition towards climate neutrality progresses, and with ever increasing number of attractive and green investment opportunities that are expected to become available in future.
Supervision
As regards supervision, competent authorities of the home member state designated shall ensure that issuers comply with their obligations under the new standard.
Agreement is provisional as it still needs to be confirmed by the Council and EP, and adopted by both institutions before final; it will start applying 12 months after in force.
EP Statement
On the same day European Parliament issued its own statement on the agreement.
Noted that European Green Bonds Standard (EUGBS) will primarily enable investors to orient investments more confidently towards more sustainable technologies and firms.
It will also give the company issuing the bond more certainty that their bond will be suitable to investors; standard aligns with more horizontal Taxonomy legislation which defines which economic activities can be considered as sustainable, see #110490.
Enable investors to identify quality green bonds and companies, reduce greenwashing.
Clarify to bond issuers which economic activities can be undertaken on bond proceeds.
Set in place clear reporting process on the use of proceeds from the sale of the bond.
Standardize verification work of external reviewers, on meeting the EUGBS standards.
Transparency
All companies choosing to use standard when marketing a green bond will be required to disclose much information about how the bond’s proceeds will be used, but are also obliged to show how those investments feed into the transition plans of the company.
Standard therefore requires companies to be engaging in a general green transition.
The adoption of the standard will also guarantee that the bond is taxonomy aligned.
The disclosure requirements, set out in template formats, will also be open to be used by companies issuing bonds which cannot fulfil all requirements to qualify for EUGBS.
These companies would thereby subject themselves to ambitious transparency requirements and, as a result benefit from better trust among investors.
External Reviewers
The rules establish a registration system and supervisory framework for external reviewers – independent entities responsible for assessing whether a bond is green.
Equally importantly, regulation stipulates that any actual or even potential conflicts of interest are properly identified, eliminated/managed, and disclosed in transparent way.
Technical standards may be developed on criteria to assess conflict management.
Flexibility
Until taxonomy framework is fully up and running, legislators agreed to allow 15% of proceeds from a green bond to be invested in economic activities that comply with taxonomy requirements but for which no criteria would have yet been established to determine if that activity contributes to a green objective (technical screening criteria).
Effectiveness
The Council set its position on the proposal on Apr. 13, 2022; trilogue negotiations started on Jul. 12, 2022, and ended with provisional agreement reached on Feb. 28.
In Mar. 2023, ICMA issued response to EU provisional agreement, see #165090.
In Mar. 2023, AFME commented on the provisional agreement reached, see #165269.
Documents dated May 4, 2023, were received on May 25, 2023, due to a fixed feed.
On Feb. 28, 2023, a provisional agreement was reached, followed by technical work, resulting in the final compromise text as set out in document 8011/23.
It was agreed that a statement by Council and EC, as set out in Addendum 1, will be entered in the Council minutes at the moment of the final adoption of the Regulation.
COREPER is invited to approve the text of the draft Regulation as set out in doc. 8011/23 with a view to reaching an agreement at first reading with the EP.
And give to the Chairman of COREPER the mandate to inform the Chair of EP's ECON Committee that, should the European Parliament adopt the text of the proposal in the exact form as set out in doc. 8011/23, Council would adopt the proposed regulation.
Oct. 2, 2023 Standard Next Steps
On Oct. 2, 2023, EP issued article Green bonds: more transparency, no greenwashing which explained the European green bond standard was first of its type in the world.
Available to companies and public entities that wish to raise funds on capital markets to finance green investments that align to the EU taxonomy for sustainable activity.
Parliament is expected to approve the new law during plenary session Oct. 2-5, 2023.
Oct. 5, 2023 EP Adoption
On Oct. 5, 2023, EP approved draft reg on voluntary standard on EU Green Bonds.
Adopted by 418 votes for, 79 against, 72 abstentions, lays down uniform standards for issuers who wish to use European green bond or EuGB for marketing of their bond.
Standards align with EU taxonomy framework that defines which economic activities the EU considers environmentally sustainable, will support EU climate transition.
Called on EU CMSN to refer to EP again if it replaces or substantially amends proposal.
Instructs President to forward EP position to EU CNCL, EU CMSN, national parliaments.
Oct. 9, 2023 EU CNCL Note
On Oct. 9, 2023, EU CNCL issued note dated Oct. 6 on outcome of EP's first reading.
When it voted on Oct. 5, 2023, the EP plenary adopted the compromise amendment (amendment number 2) to the abovementioned proposal for a regulation.
The Commission's proposal as thus amended constitutes the Parliament's first-reading position which is contained in its legislative resolution as set out in the Annex to note.
Parliament's position reflects what had been previously agreed between institutions.
The Council should therefore be in a position to approve the Parliament's position.
Act would then be adopted in the wording which corresponds to Parliament's position.
Regulation shall enter into force on 20th day following that of its publication in the OJ.
It shall apply from 12 months after the date of entry into force of the regulation.
Oct. 16, 2023 Proposed Adoption
On Oct. 16, 2023, EU CNCL issued item note concerning adoption of legislative act.
COREPER asked to suggest Council approve EP's position, as set out in PE-CONS 27/23, as "A" item at a forthcoming meeting, with Austria, Germany and Luxembourg abstaining, and approve statement by Council, as set out in Addendum 1 to the note.
Other statements for the minutes of Council meeting are set out in Addendum 2.
If the Council approves the Parliament's position, the legislative act will be adopted.
Oct. 19, 2023 German Statement
On Oct. 19, 2023, EU CNCL issued item note containing revised Addendum 2 to above item note of Oct. 16, 2023, revision adds a statement from Germany on its position.
Germany continues to believe that nuclear energy is not sustainable, does not consider its inclusion to be appropriate for the creation of a gold standard for green bonds.
Therefore cannot support the political agreement on Green Bond Regulation in entirety.
Document dated Oct. 19, 2023, received from EU CNCL Oct. 20, summarized Oct. 25.
Oct. 24, 2023 Regulation Adopted
On Oct. 24, 2023, EU CNCL announced it adopted the final Green Bonds regulation.
It will foster consistency and comparability in green bond market and benefit many.
To prevent greenwashing in green bonds market, it provides for voluntary disclosure requirements for other environmentally sustainable bonds, sustainability-linked bonds.
All proceeds of EU green bonds will need to be invested in economic activities aligned with EU taxonomy for sustainable activities, if sectors concerned already covered by it.
For sectors not yet covered by EU taxonomy, certain very specific activities, there will be flexibility pocket of 15%, to ensure usability of EU green bond reg from the start.
Council adopted reg on Oct. 23, EP had adopted agreement in position of Oct. 5, 2023.
The regulation will be signed, published in the EU's Official Journal before entering into force 20 days later; it will start applying 12 months after its entry into force date.
